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Why Is Check Point Software (CHKP) Up 5.1% Since the Last Earnings Report?

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A month has gone by since the last earnings report for Check Point Software Technologies Ltd. (CHKP - Free Report) . Shares have added about 5.1% in that time frame, outperforming the market.

Will the recent positive trend continue leading up to the stock’s next earnings release, or is it due for a pullback?  Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.

Check Point’s Q4 Earnings & Sales Beat Estimates

Once again, Check Point managed to impress investors with solid quarterly results. For the fourth quarter of 2016, the company reported better-than-expected results.

Check Point’s adjusted earnings per share (including stock-based compensation but excluding amortization of intangible assets) of $1.33 beat the Zacks Consensus Estimate of $1.15. Adjusted earnings also climbed approximately 21% on a year-over-year basis, driven mainly by higher revenues and a lower share count, which were partially offset by higher operating expenses.

On a non-GAAP (excluding stock-based compensation and amortization of intangible assets) basis, the cybersecurity company posted earnings of $1.46, which were not only 21.7% higher than the year-ago quarter but way ahead of its own guidance range of $1.20 to $1.28. Moreover, it should be noted that this was the best quarterly non-GAAP EPS growth rate the company has witnessed since the third quarter of 2010.

Revenues

Fourth-quarter revenues came in at $486.7 million, up 6.3% year over year, and beat the Zacks Consensus Estimate of $477 million. The figure was also close to the upper end of the company’s guidance range of $460 million to $490 million (mid-point $475 million).

Top-line growth was aided by sales growth of 9.7% in Products & Software Blades and 1.6% in Software Updates and Maintenance. The company also reported a 25.5% surge in subscription revenues at Software Blades.

Check Point witnessed higher demand for data center and high-end appliances. Another factor contributing to overall growth was the increased number of large deal signings. The number of new customers who signed deals worth $1 million or more was 99, a 15% increase from the year-ago quarter’s tally of 86. Moreover, customers who signed deals worth $50,000 and more contributed 76% to the total order value, up from 72% registered in the fourth quarter of 2015.

Geographically, the Americas contributed 47% to revenues and Europe accounted for 38%, while Asia-Pacific, Japan, and the Middle East and Africa added the remaining 15%.

Operating Results

On a year-over-year basis, adjusted gross profit (including stock-based compensation but excluding amortization of intangible assets) increased 6.1% to $428.5 million. However, as a percentage of revenues, gross profit contracted 20 basis points (bps) to 88%.

Adjusted operating expenses (including stock-based compensation but excluding amortization of intangible assets) rose 13.8% year over year to $183.8 million as the company continued to make investments. The increase may also be attributed to higher research and development, and selling and marketing expenses as well as to acquisitions made over the past year. As a percentage of revenues, operating expenses increased 250 basis points (bps).

Adjusted operating income (including stock-based compensation but excluding amortization of intangible assets) came in at $244.7 million, up nearly 1% year over year. However, margins contracted 260 bps as a percentage of revenues mainly due to higher operating expenses.

Adjusted net income (including stock-based compensation but excluding amortization of intangible assets and other one-time items calculated on a proportionate tax basis) was $225.3 million or $1.33 per share, up from $197.7 million or $1.10 reported last year.

Balance Sheet & Cash Flow

Check Point exited the year with cash and cash equivalents, marketable securities and short-term investments of approximately $3.669 billion. During 2016, the company generated operating cash flow of $923 million. Moreover, Check Point repurchased $988 million worth of common stock in 2016.

Outlook

Taking into account the back-to-back quarters of favorable business trends, Check Point provided a strong revenue and earnings guidance for the first quarter and full year 2017.

The company expects to generate revenues between $420 million and $440 million (mid-point $430 million). Non-GAAP earnings are projected in a range of $1.15 to $1.20 per share. GAAP earnings per share are anticipated to be $0.17 or less.

For 2017, Check Point anticipates to generate revenues between $1.85 billion and $1.90 billion (mid-point $1.875 billion). Non-GAAP earnings are projected in a range of $5.05 to $5.25 per share. GAAP earnings per share are anticipated to be $0.70 or less.

How Have Estimates Been Moving Since Then?

Following the release, the stock has flatlined.

VGM Scores

At this time, Check Point Software's stock has a subpar Growth Score of 'D', and a score of 'F' on the momentum front. Charting a somewhat similar path, the stock was allocated a grade of 'F' on the value side, putting it in the bottom 20% quintile for this investment strategy.

Overall, the stock has an aggregte VGM score of 'F'. If you aren't focused on one strategy, this score is the one you should be interested in.

Our style scores indicate investors will probably be better served looking elsewhere.

Outlook

The stock has a Zacks Rank #1 (Strong Buy). We are expecting an above average return from the stock in the next few months.


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